Ch. 20 AP Microeconomics (Income Inequality and Poverty)

Poverty

The condition of lacking an adequate amount of money, belongings, and/or means of financial support. Is correlated with race. age, and family composition.

Poverty Rate

Percentage of people whose income falls below the poverty line, measures distribution of income. All time low achieved in 1973, however has increased or remained near the same level since then which is related to income inequality.

Income inequality

The existence of disproportionate distribution of total national income among households whereby the share going to rich persons in a country is far greater than that going to poorer persons. From 1930 to 1970 the gap between the rich and poor closed, but from the 1980's to 2000's this trend has reversed itself in the U.S.

John Stuart Mill

English philosopher and economist remembered for his interpretations of empiricism and utilitarianism (1806-1873) Benthamite, wrote "On Liberty". Advocated right of workers to organize, equality for women, and universal suffrage

Poverty line

An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty, roughly 3 times the cost level of proving an adequate diet.

in kind transfers

Transfers to the poor given in the form of goods and services rather than cash, one of the problems that result when measuring inequality or poverty.

Life Cycle

The regular pattern of income variation over a person's life. A persons income generally is low when young, then increases until about 50 and drops off after retirement at age 65. Another problem when measuring poverty and income inequality especially when compared to true living standards.

Permanent income

A person normal (average) income. Differs from transitory income which depends on outside conditions.

utility

A measure of happiness or satisfaction

Transitory income

the unexpected gain or loss of income that a person experiences. It is the difference between a person's regular(permanent) and actual income in any year.

economic mobility

The degree of upward mobility in a society; refers to the economic fortunes of different groups often measured by the percent of income each group makes. Is really apparent in the U.S as only 1/5 millionaires actually inherited their income.

Utilitarianism

The theory, proposed by Jeremy Bentham in the late 1700s, that government actions are useful only if they promote the greatest good (utility) for the greatest number of people.

liberalism

The political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind "a veil of ignorance" Started by Philosopher John Rawls. Based on idea that we should maximize the minimum.

Jeremy Bentham

The creator of Utilitarianism. Believed that public problems should dealt with on a rational scientific basis. Believed in the idea of the greatest good for the greatest number. Wrote, Principles of Morals and Legislation.

diminishing marginal utility

The principle that our additional satisfaction, or our marginal utility, tends to go down as more and more units are consumed.

John Rawls

Harvard philosopher who argued that justice is fairness and social equality. Wrote" A theory of Justice" which founded liberalism(as it relates to economics).

maximum criterion

The claim that gov't should aim to maximize the well-being of the worst-off person in society. Also known as Rawls rule, is a fundamental part of his economic theory of liberalism.

Social Insurance

Government policy aimed at protecting people against the risk of adverse events

libertarianism

The political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income. Belief in the equality of opportunities.

Anarchy, State, and Utopia

A work of political philosophy written by Robert Nozick in 1974, argues in favor of a minimal state, "limited to the narrow functions of protection against force, theft, fraud, enforcement of contracts, and so on." When a state takes on more responsibilities than these, Nozick argues, rights will be violated. Support libertarianism.

the liberty principle

Each person is to have an equal right to the most extensive system of basic liberties that's compatible with everyone Else's right to the same thing. This principle is the more important than the difference principle, as this requirements come first(or at least according to Rawls)

the difference principle

Economic inequalities should be arranged so that they are to the benefit of everyone, including the least well off

Welfare

Government programs that supplement the incomes of the needy,

Negative income tax

A tax system that collects revenue from high-income households and gives transfers to low-income households

EITC

EARNED INCOME TAX CREDIT: a program that gives tax credits and even cash payment to qualified workers, works like an negative income tax.

child labor

Full-time employment of children for work otherwise done by adults.

Workfare

Programs that require welfare recipients to exchange some of their labor in return for benefits.

1996 Welfare reform bill

Signed by Clinton. Ended AFDC and required Congress to appropriate a total of $16.8 billion to states annually through 2002. Clinton said " Welfare should be a second chance, not a way of life".

Gini coefficient

A measure of income inequality that ranges from 0 (perfect equality) to 1 (perfect inequality). It is calculated by dividing the area between the perfect equality line and the Lorenz curve by the total area on the right of the equality line

Lorenz curve

A widely used graph of the distribution of income, with cumulative percentage of families plotted along the horizontal axis and cumulative percentage of income plotted along the vertical axis. Used in Gini coefficent calculation.